2016 was a record-breaking year for Mergers and Acquisitions (hereafter M&A) in the Canadian business landscape, with approximately 3,100 transactions finalized[1]. When conducted optimally with rigorous attention to all potential risks, M&As bring substantive economic gain, synergies, and new business opportunities for the respective organizations, as well as for the legal, financial, and change management experts who are engaged to drive the process and ensure successful outcomes. M&A stakeholders expend enormous resources pre- and post- due diligence to proactively identify the relevant issues and potential challenges to a smooth and cost-effective integration of the organizations involved. Considerable time, effort and investment is undertaken to asses the variables of structure, legal, process, technology, systems, human resource, and infrastructure and to plan accordingly. Nonetheless, in spite of this rigor, estimates indicate that 83% of M&As fail. These failures can be attributed to the neglect or even omission of the one key variable that undermines or even sabotages efforts and overall value generation: that variable is Organizational Culture[2]:
“While some will suggest other factors – silly things like objectives and strategies and implementation – they are all derivative. The game is won or lost on the field of cultural integration.”[3]
Corporate culture is a ubiquitous and complex factor because it includes behavioural and system issues that are informal or even obscure, such as work-life values, implicit communication styles, priorities, team professionalism, hidden decision-makers and power dynamics, that can readily undermine even an ‘ideal’ M&A.
Given this background, the authors were interested to learn of the persepctives and experiences of organizational culture from M&A experts actively engaged in the Canadian M&A landscape. An in-depth series of confidential interviews was therefore conducted with M&A consultants, investment financiers, virtual capitalists, lawyers, and transformation experts across Canada. They were asked to discuss the following issues, and the findings from Question #1 are reported below:
- Have you experienced the impact of organizational culture upon the success or efficiencies of the M&A in which you have been engaged?
- If yes, what was the impact? When does this factor arise?
- Is organizational culture a factor you are motivated to identify and address?
- If yes, what resources would you be willing to invest? At what stage in the M&A would an in-depth understanding of organizational culture be most useful?
- If no, who would be motivated to identify and address?
All participants unanimously understood the importance of organizational culture and most had directly experienced the costs that arise due to mismatched cultures. Participants reported that due diligence timelines, budgets and resources, as well as post-diligence integration and transformation efforts are routinely exceeded, and recognized that the organizational cultures were at least partially the cause.
In spite of this clear understanding and acceptance of the impact of organizational culture, three substantive barriers to including organizational cultural assessment in due diligence were reported. First, participants reported that there is little to no incentive to robustly identify organizational culture, particularly if recognition of emergent organizational clashes could delay the closure of the deal; M&A stakeholders are often only compensated upon closure, thus, they are motivated to avoid the complexities of organizational culture. Secondly, participants reported risks inherent to conducting a robust assessment of organizational culture. Prior to any sign-off, confidentiality is key, therefore having access to the management and staff needed to assess culture would be challenging. Moreover, some participants reported that a Seller may actively prefer that his/her organizational cultural issues are not be identified for fear of jeopardizing the M&A opportunity. Finally, participants unanimously reported that they have no formal training or professional experience in organizational cultural assessments, nor do they wish to become embroiled in such issues. As one participant succinctly stated, “Sure I’d like to own a pet unicorn, but…”
In summary, the authors conclude that integrating an optimal and robust assessment of organizational cultures would bring value and efficiencies to M&As, and that the data and insights would be appreciated and advantageous for M&A experts. However, the question remains as to how, when, and by whom this data be collected, effectively interpreted, and shared in order to fully protect the confidentiality and discretion of the transaction. We explore these issues in Part 2 of Understanding the Impact of Organizational Culture upon Mergers & Acquisitions: Insights from Canadian M&A Experts.
[1] Adkins, Mark & Thompson, Andrew; Mergers & Acquisitions: trends to watch in 2017, December 21, 2016
[2] Schulte, Ansgar, Major Pitfalls in Mergers, Acquisitions and Divestitures, 11 May 2012
[3] Bradt, G. The Root Cause Of Every Merger’s Success Or Failure: Culture, Forbes, July 29, 2015
AUTHORS:
Dominique Laverdière, CRHA Cohaesio
Sean M. Hayes, PsyD Cohaesio
Caroline Samne The Pillars
Anne Pertus, The Pillars
